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Real Estate Tenancies and the Coronavirus Emergency

Main Content
Tue, 03/24/2020
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hahnnews

The coronavirus pandemic has led to widespread disruption for individuals and businesses throughout the world. Forced business closures will soon result in substantial reductions in income available to meet basic expenses like rent and mortgage payments. What is being done by government to address this crisis and how should affected landlords and tenants deal with it?

The Federal Response.

Thus far, the federal government's response has been to provide relief from some residential real estate foreclosure evictions and to provide low cost loans to small businesses. Other aid measures are currently under consideration but have not yet been enacted.

A moratorium on foreclosures and evictions involving loans backed by the Federal Housing Finance Agency or federally-backed Fannie Mae and Freddie Mac loans was announced on March 18th. Foreclosures and evictions on properties with these federally-backed loans have been suspended for at least 60 days from mid-March. In addition, Fannie Mae and Freddie Mac have been ordered to provide payment plans and forbearances to homeowners who have lost income due to the coronavirus. These plans allow payments to be suspended for up to 12 months. Homeowners who do not have federally-guaranteed mortgages should contact their loan servicer about the availability of mortgage relief. To date, the federal government has not issued any directives applicable to non-federally backed loans, but has asked private lenders to voluntarily offer relief.

It is important to note that affected homeowners need to contact their loan servicer to obtain relief. The relief is not automatically given. In addition, the federal provisions only delay foreclosures or defer when payments are due. The loan debt is not forgiven, so borrowers need to be prepared to pay their financial obligations when the moratorium on foreclosures and evictions expires or when their loan deferral period expires.

The federal response is sure to change and evolve in response to the unfolding crisis. Financially distressed homeowners should monitor developments closely and watch for new federal directives that extend relief periods or expand relief measures to include non-federally backed loans as well.

State of California Response.

Governor Gavin Newsom recently declared a state of emergency in California due to the spread of the coronavirus. The state of emergency empowered the Governor to issue an executive order affecting evictions and foreclosures statewide. Instead of taking statewide action, the executive order allows local governments to suspend or restrict both residential and commercial evictions for non-payment of rent due to a loss of income caused by the coronavirus or the government's response to coronavirus. (The Governor's order can be found here.) As of March 22nd, the Governor's office was monitoring how local governments were exercising their authority and indicated that if insufficient action is taken, the Governor may act to suspend or restrict evictions and foreclosures statewide.

Local Responses.

Several cities and counties throughout California have already adopted measures to bar or strictly limit foreclosures and evictions. The measures vary from city to city and county to county. In Pasadena, for example, there is an indefinite moratorium on all evictions (both commercial and residential) for non-payment of rent due to loss of income caused by the coronavirus. (Pasadena's resolution enacting the ban is found here.) Pasadena's ban will stay in place until the city declares that the coronavirus emergency is over. In the City of Los Angeles, similar provisions have been enacted but tenants are given six months to repay back rent. Of note, none of the emergency measures relieve tenants of the obligation to pay rent. Tenants who can afford to pay rent must do so. Tenants who cannot afford tp pay rent must pay their back rent timely when the moratorium ends or they can be evicted.

Regardless of whether a city or county has taken steps to limit evictions or foreclosures, court closures have effectively made it impossible for landlords to evict tenants in the near future regardless of cause. In Los Angeles County, for example, civil courts are not scheduling any eviction matters for trial at this time and the time limit for tenants to respond to an eviction complaint that is filed (which is a pre-requisite to scheduling an eviction trial) has been extended to at least mid-April. (See the LA Superior Court's General Order here.) Future extensions are likely. Thus, as a practical matter, no evictions will be taking place in most areas for the near term.

What should I do if I am a landlord and my tenant has not paid rent?

Landlords should consult with a lawyer before taking any formal steps to evict a tenant for non-payment of rent. If your tenant has advised you that it cannot pay rent due to the coronavirus, many of the steps you would normally take to obtain payment or pursue eviction may not be legal. For example, Pasadena has barred residential landlord's from even serving a 3-day notice to pay or quit when the landlord knows the tenant has not paid rent due to the coronavirus emergency. In addition, you should consider whether the unavailability of judicial relief makes it more practical to negotiate with tenants than to try to evict them.

What should I do if I am a tenant and I cannot pay my rent due to coronavirus?

Find out whether your city or county has enacted measures to limit evictions and, if it has, carefully follow the steps outlined in those measures to protect yourself against eviction. Most cities that have acted to protect renters require that the tenant contact the landlord first and advise it that the tenant cannot pay rent due to the coronavirus. Some require that tenants provide documentation of the claim, such as financial records, but usually the ordinance provides privacy and use protections for the information disclosed. Bear in mind that when the coronavirus emergency ends, you may face a large liability for unpaid rent that will have to be repaid in order to avoid future eviction. If you are unsure of what the city or county emergency measures require, consult a lawyer.

If you are a commercial tenant, you should also investigate the availability of low and no interest emergency loans from federal government agencies to help you generate new income and cover expenses like rent during the coronavirus emergency.

If you are a homeowner, contact your loan servicer to explore your loan forbearance and other repayment options.

Practical Overall Economic Considerations.

We are all in this together. The coronavirus pandemic affects everyone economically. All parties should confer about what is occurring – landlords and tenants, lenders and borrowers. Everyone should demonstrate flexibility and empathy. Understanding the position of the other party and working to find a solution that is best for all concerned will allow us to continue business relationships in the future and prosper together when the coronavirus emergency passes.